Cyprus is taking steps to enhance its regulation of the cryptocurrency sector by imposing harsh penalties on crypto service providers (CSPs) who operate without proper registration. The government has introduced a proposed amendment to the “Prevention and Suppression of Money Laundering Law.”
This amendment aims to align Cyprus with international standards outlined by the Financial Action Task Force (FATF) and in accordance with the recommendations put forth in the MONEYVAL report.
Registration With Cysec Mandatory for CSPs
According to the proposed amendment, crypto asset dealing companies known as CSPs must register with the Cyprus Securities and Exchange Commission (CySEC), which serves as the country’s financial regulator. Failure to comply with this requirement can result in severe consequences, including fines up to €350,000 and imprisonment for a maximum of five years, or both.
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The government has justified these penalties as crucial measures in combating money laundering and terrorism financing risks, particularly considering advancements in new technologies. Cyprus is not alone in implementing stringent measures against unlicensed CSPs.
Malta has also imposed penalties of up to six years’ imprisonment and fines reaching €15 million for violations of cryptocurrency regulations. Similarly, countries like France and Ireland have also enacted various sanctions ranging from imprisonment to substantial fines for similar offenses.
Cyprus Bar Association Raises Concerns
The draft amendment has faced criticism from the Cyprus Bar Association. The association has expressed concerns about the law’s scope and questioned why CSPs registered in other EU member states should also register in Cyprus, considering they are already under their home state’s supervision.
Additionally, the association suggested including the “Travel Rule,” which requires CSPs to share customer and transaction information with each other and authorities.
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In response, the Finance Ministry stated that the law aligns with the single market functioning within the EU. They emphasize that CySEC holds authority over CSPs providing services in Cyprus, irrespective of their registration in other EU states.
Moreover, they assured that necessary modifications to Cyprus’ existing legislation would enable the timely implementation of the “Travel Rule.” A Parliamentary Committee on Legal Affairs is reviewing this draft amendment, which is expected to be passed soon.
